Estee Lauder Companies Inc (EL)

The Estee Lauder Companies Inc's liquidity ratios have shown a general declining trend over the past five years, indicating a potential decrease in the company's ability to meet its short-term obligations.

1. Current Ratio:
The current ratio measures the company's ability to cover its short-term liabilities with its current assets. Estee Lauder's current ratio has decreased from 1.72 in 2020 to 1.39 in 2024. While the current ratio above 1 indicates that the company can cover its short-term obligations, the decreasing trend suggests a potential weakening liquidity position.

2. Quick Ratio:
The quick ratio, also known as the acid-test ratio, provides a more stringent measure of liquidity by excluding inventory from current assets. Estee Lauder's quick ratio has also declined from 1.20 in 2020 to 0.90 in 2024. This suggests that the company's ability to meet its short-term liabilities without relying on inventory has weakened over the years.

3. Cash Ratio:
The cash ratio measures the company's ability to cover its current liabilities with its cash and cash equivalents. Estee Lauder's cash ratio has shown a similar declining trend, from 0.97 in 2020 to 0.60 in 2024. This indicates a decrease in the company's ability to pay off its short-term obligations solely with cash.

Overall, the decreasing trend in Estee Lauder's liquidity ratios raises concerns about its ability to meet its short-term obligations efficiently. Management may need to monitor and potentially improve the company's liquidity position to ensure financial stability and growth in the future.

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See also:

Estee Lauder Companies Inc Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle of Estee Lauder Companies Inc has shown some variability over the past five years. In the most recent period ending June 30, 2024, the company's cash conversion cycle stood at 58.58 days, which represents a decrease from the previous year. This indicates that Estee Lauder was able to convert its investments in inventory and receivables into cash more efficiently in 2024.

Looking back further, the trend in the cash conversion cycle shows fluctuations year over year. In 2023, the cash conversion cycle was 65.28 days, which was higher compared to both 2024 and 2022. This suggests that the company took longer to convert its inventory and receivables into cash in 2023.

In 2022, the cash conversion cycle was 60.14 days, showing a slight improvement from 2021 but still higher than the cycle observed in 2024. In 2021, the cash conversion cycle was 59.48 days, indicating a relatively efficient conversion of assets into cash compared to the previous year.

The most efficient performance in terms of the cash conversion cycle was observed in 2020, with a cycle of 53.02 days. This suggests that in 2020, Estee Lauder was able to manage its inventory and receivables in a way that allowed for a quicker conversion into cash.

Overall, the trend in Estee Lauder Companies Inc's cash conversion cycle shows some variability, with improvements in some years and slight setbacks in others. However, the recent decrease in the cash conversion cycle indicates a positive trend towards more efficient management of working capital.